Calculating a relevant TWI Pacific Financial Technical 计算相的二次太平洋金融技术

1、calculating a relevant twirichard sullivanreserve bank of new zealandtrade weighted exchange rate what is a twi/neer/reer? why have one? what is it used for? what currencies to use? how to weight? why not just trade weights? how to calculate neer how to recalculate, and how often? how to calculate r

2、eerwhat is a twi?twi = trade weighted indexa multilateral exchange rate which is a weighted average of exchange rates of foreign currencies, with the weight for currency based on its share in trade. it measures the average price of goods relative to the average price of goods of trading partners.wha

3、t is it for?a tool for measuring: direct influence of exchange rate movements on prices indirect influence of the exchange rate on inflation through influence on external sector competitivenessif the index increases, the purchasing power of that currency is higher (the currency strengthened against

4、the countrys trading partners). a lower index means that the currency depreciated (devaluation) so that you need more of that currency to pay for imports.provides a measure of relative value against a range of currencies you are interested in.neernominal effective exchange rate a nominal twithe weig

5、hted average value of a countrys currency relative to a pool of currencies. the weights are determined by the importance a home country places on the other currencies within the pool usually based on trade. usually measured by trade flows (hence twi). twi less volatile2005200620072008200950607080506

6、07080indexnzd/usd (cents)nzd twinzd/usdpaanga not as volatile as bilateral rates suggestreer real effective exchange rate a real twi same as neer, but adjusted for inflation better measure of competitiveness over time takes into account price movementsa higher reer indicates lower competitiveness as

7、 it costs more to produce similar goods.neer calculationimportant decisions pick the relevant currencies trade flow? policy goals will provide guide determine appropriate weights which way to weight? how often to re-weight?choosing appropriate currencies trade flows just exports? if export competiti

8、veness is the primary goal just imports? if imported price inflation is key priority all trade? other currency flows remittances capital/grants completeness vs ease of calculationfactors to consider when determining weights equal weighting to exports and imports? other currency flows foreign currenc

9、y regimes currency pegs (e.g to usd) similar baskets (e.g fiji and tonga)third country competition competition faced by exporters from countries not in basket e.g squash from mexico to japan studies show is good proxy for wider range of currencies within twimore currencies does not mean better cover

10、agetwi14 index includes the five twi currencies with the addition of the currencies of: china, malaysia, indonesia, thailand, taiwan, korea, singapore, hong kong and canada.administrivia arithmetic vs geometric mean update frequency ease of finding data what data to usedata website imf data currenci

11、es gdp inflation /external/data.htm weo database for gdp and inflation ifs if you need currenciesneer examplesexamples nzd twi 5 currency basket with 50% gdp weight tonga neer 4 currency basket, all trade weight 5 currency basket, 25% trade weight what about the cny?nzd twi gdp weig

12、ht greatly increases importance of usd and euro better reflects actual currency traded, and third country competitiontop neer previous methodology trade only weights subject to large changes in weights no account for 3rd country competition updated every 5 years weights can become inappropriatetop n

13、eer added 3rd country competition 25% gdp weights/75% trade weights(50% made usa too dominant as other countries were so small relatively) update more regularly stability in weightcalculation of neer 1.get trade weights for appropriate year appropriate year will always be 2 years behind (e.g in janu

14、ary 2009, the data you need are for 2007) insert total annual import and export data into sheet data calculate trade weight as % of basket currencies2.get gdp weights for appropriate year enter gdp data into sheet data enter average exchange rate for year to make convert gdp into usd calculate gdp w

15、eight as % of basket currencies3.neer weights will be weighted average of both trade and gdp weight4.calculate index convert bilateral exchange rates to index with common base use new weights to calculate index = 100 for month in which you plan to change multiply by factor so that it is splice with

16、previous year (eg if neer is 51.6, multiply new index by 51.6/100) 1. calculating trade weight find import and export data for chosen currencies in local currency calculate as percentage of all trade with those chosen countries2. calculating gdp weight find gdp data for chosen currencies in levels i

17、n common currency calculate as percentage of total gdp of those chosen countries3. calculate neer weightaverage exchange rate for yearsum of selected countries3. calculate neer weightshare of trade/sum of tradeshare of gdp/sum of gdpweighted average of above4. calculate index set bilateral exchange

18、rates to common base index multiply by neer weights and aggregate splice with current seriesexamplecreate common basemultiply by weights to get neersplice index to include the cny? currency flows suggest it is a very important currency to consider imports grants loans pegged to usd so no reason to a

19、dd as new currency peg is being loosened should increase importance of cny consider inclusion as cny moves become less tied to usdreeranother important decision what deflator to use? depends on policy goal core inflation is theoretically best but different countries measure core inflation differentl

20、y headline inflation is most accessible all countries publish best for international comparison due to similarityt.nz/research/bulletin/2007_2011/jun2007.html“a review of the trade weighted index”calculation calculate bilateral real exchange rates r = e*p/p r = real exchange rate e = n